But what about the "unsigned" players? Also, your second proposed feature may be too complicated, especially when players sign-up at "the last minute"; will said feature be done by person or some specific algorithm? Not to mention, having increased penalties for lesser-than-Champion players might be a tad too harsh. Though I do like being able to choose which theme to represent your team.
It would only be the last minute before the week of Team Name voting occurs. Players would a have a week for both phases.
Week 1 - Accept Splatfest Participation Agreement At Booth
Players who have signed up are now divided into two teams. Program looks at recent player history of all signed players for factors that could point to skill level/experience and makes division based on this. Those who do not sign up can play Customs or something.
Week 2 (Ending With 24hr Splatfest) - Vote For Your Team's Name
I'd rather eat ___ (Apple or Mango) - Team 1 is Team Mango
vs
I'd rather eat ___ (Banana or Kiwi) - Team 2 is Team Kiwi
This has a similar feel to how it goes down now. The key difference is that players are not choosing what team they want to be on according to a name. Instead each team votes on the name. As mentioned earlier, both teams would have two names to choose from. So there is a bit of the popularity element, but not one that would influence anything other than what the names of teams would be.
So far it's the best I could come up with for eliminating the team imbalance issue while retaining the fun of the pre Splatfest survey tradition.
I think I said the negative penalty only occurs if you fail to get Defender, which is level 3. So if you stop playing Splatfest within Level 2 (Fiend, I think), then you will lose something. It could be leveling down or maybe a crazy chunk of coins (possibly overdraft). But all of this would be made clear in the terms during Week 1 (Sign Ups). In fact, it kind of goes with the idea of Sign Ups. Without it, I wouldn't think Sign Ups are necessary, just an auto assignment (for balance) of all Splatoon players to teams before Splatfest. Frankly, I wouldn't mind penalties occurring at all levels less than Champion. This is another step to prevent free-loaders and, more importantly, an imbalance of participation between the teams as the event grows closer to closure.
But hey, maybe just throw the sign up idea out. Still have the auto division of the entire Splatoon base for the region prior to Splatfest and present the terms (penalties and all) at the point of voting for Team Name. Actually, I think that would be better. So yeah, forget "Week 1 - Sign Ups". lol!